The US economy is showing recovery at a steady pace backed by consumer spending, business investments and improving job market, however rising prices and uncertainties still lingers. The GDP grew at a significant improved rate in the second quarter compared to the first quarter of 2024.
Given the backdrop, investors could consider fundamentally solid dividend ETFs SPDR S&P Dividend ETF (SDY), Vanguard High Dividend Yield Index Fund ETF Shares (VYM), and Schwab U.S. Dividend Equity ETF (SCHD) for investing for diversified income.
Despite the concerns about elevated prices, interest rates, and future uncertainties, the U.S. consumer confidence improved in July. Consumers’ 12-month inflation expectations grew at 5.4% in the month. Also, the healthy 3% annual growth rate of the U.S. economy in the last quarter reflects a strong regain. The growth is fueled by strong consumer spending and business investment.
According to the U.S. Bureau of Economic Analysis, personal income grew by $75.10 billion, showing a 0.3% monthly growth in July. Also, disposable personal income rose at the same rate or $54.8 billion and personal consumption expenditures rose $103.8 billion or 0.5%.
Against this economic outlook, investing in ETFs like dividend ETFs designed to invest in a basket of dividend-paying stocks can offer stable income stream and potential growth through price appreciation to investors. These are an apt investment alternate for investors with low risk tolerance seeking regular payouts.
Considering these trends, let’s analyze the fundamentals of the three dividend ETFs within the A-rated Large Cap Value ETFs group, beginning with number 3.
Stock #3: SPDR S&P Dividend ETF (SDY)
SDY is launched by State Street Global Advisors, Inc. and managed by SSGA Funds Management, Inc. The fund focuses on growth and value stocks across diverse market caps. It offers exposure to dividend paying large-cap companies within the U.S. equity market. It tracks the S&P High Yield Dividend Aristocrats Index.
The fund has assets under management (AUM) of $21.20 billion. SDY’s top holdings include Realty Income Corporation (O) with a 2.79% weighting, followed by Kenvue, Inc. (KVUE) at 2.29%, and Xcel Energy Inc. (XEL) and International Business Machines Corporation (IBM) at 1.85% and 1.81%, respectively.
The ETF has a total of 135 holdings, with its top 10 assets comprising 19.08% of its AUM. SDY’s expense ratio is 0.35%, higher than the category average of 0.48%.
SDY pays an annual dividend of $3.34, which translates to a 2.39% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 6.6% over the past five years. Notably, SDY has paid dividends for 16 consecutive years.
SDY has surged 11.3% over the past six months and 14% over the past year to close the last trading session at $139.89. It has a beta of 0.86. The fund’s NAV was $140 as of August 30, 2024.
SDY’s POWR Ratings reflect its solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SDY has an A grade for Buy & Hold and Trade. It also has a B grade for Peer. Within the A-rated Large Cap Value ETFs group, it is ranked #89 of the 8 ETFs.
To access all SDY’s POWR Ratings, click here.
Stock #2: Vanguard High Dividend Yield Index Fund ETF Shares (VYM)
VYM is an ETF managed by The Vanguard Group, Inc. and invests in U.S. public equity markets. It provides exposure to large-cap companies offering dividends and value characteristics within the U.S. equity realm. The fund seeks to track the performance of FTSE Custom High Dividend Yield Index.
The fund has an AUM of $57.64 billion. Its top holdings include Broadcom Inc. (AVGO) with a 4.23% weighting, followed by JPMorgan Chase & Co. (JPM) at a 3.53% weighting, and Exxon Mobil Corporation (XOM) and Johnson & Johnson (JNJ) at 3.08% and 2.20%, respectively. VYM has a total of 553 holdings, with the top 10 assets comprising 24.21% of its AUM.
The fund has an expense ratio of 0.06%, compared to the category average of 0.49%. Over the past three months, VYM fund inflows came in at $503.61 million and over the past six months, its inflows were $524.60 million. Also, it has a beta of 0.84.
VYM pays an annual dividend of $3.56, which translates to a 2.80% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 6.8% over the past three years. Further, VYM has raised its dividend for 13 consecutive years.
VYM has gained 10.3% over the past six months and 18% over the past year to close the last trading session at $127.36. The fund has a NAV of $127.40 as of August 30, 2024.
VYM’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
VYM has an A grade for Buy & Hold and Trade. The fund is ranked #4 in the list of 89 ETFs in the same group.
To access all the POWR Ratings for VYM, click here.
Stock #1: Schwab U.S. Dividend Equity ETF (SCHD)
SCHD is an ETF managed by Charles Schwab Investment Management, Inc. The fund offers exposure to dividend-paying U.S. equities. SCHD is a market-cap-weighted fund and invests in companies with a 10-year history of paying dividends. The fund tracks Dow Jones U.S. Dividend 100 Index.
With $60.13 billion in AUM, SCHD’s top holdings are Lockheed Martin Corporation (LMT) with a 4.53% weighting, AbbVie, Inc. (ABBV) at 4.38%, and BlackRock, Inc. (BLK) and Coca-Cola Company (KO) at 4.22% and 4.19%, respectively. The ETF has a total of 101 holdings, with its top 10 assets comprising 41.21% of its AUM.
The fund has an expense ratio of 0.06%, lower than the category average of 0.49%. SCHD fund inflows were $2.36 billion over the past six months and $4.06 billion over the past year.
SCHD pays an annual dividend of $2.83, which translates to a 3.35% yield at the current price level. Further, the fund’s dividend payouts have increased at a CAGR of 12.9% over the past five years. SCHD has raised dividends for 12 consecutive years.
SCHD has gained 8.9% over the past six months and 13.3% over the past year to close the last trading session at $84.53. It has a beta of 0.88. The fund’s NAV was $84.51 as of August 30, 2024.
SCHD’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade, and Buy & Hold. Of the 89 ETFs in the A-rated Large Cap Value ETFs group, SCHD is ranked #2.
Click here to see all the SCHD ratings.
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VYM shares were trading at $125.90 per share on Tuesday afternoon, down $1.46 (-1.15%). Year-to-date, VYM has gained 14.39%, versus a 17.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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